Sunday, September 09, 2007

Economic activity in SL dropped by half

Since gambling was officially banned in Second Life, economic activity was completely devastated - it dropped by nearly 50%, as I had predicted earlier. In just about any normal economy, this would cause a complete collapse. But thanks to the tight control Linden Labs has over the primary means of trading lindens to dollars, Linden Labs was able to maintain the value of the Linden to 270ish per one dollar. How?!?!?

Linden Labs had to slow down printing their own money, which was also a recipe for disaster in its own sense (inflation would far out-pace demand). If Linden Labs' own self-reported statistics are to be believed, they dropped their printing by nearly 75% for the month of August. However, it looks like they panicked and resumed printing at their previous rate in September - they've already matched their August output in the first week of September. After all, printing their own money is a lucrative business for Linden Labs - if you ignore the whole inflation problem, they actually do pretty well for themselves.

Linden Labs pretty much has a monopoly on the trading of lindens to dollars. You can't go to too many other places and buy or sell lindens. Inexperienced traders (or new users who haven't set their exchange setting to "advanced", which is probably the case for most newcomers) buy at a built-in disadvantageous rate, which artificially keeps the demand high. With Linden Labs still printing their own money and selling it at the inflated disadvantageous rate to the newcomers, they continue bringing in bucks for the company and artificially creating the sense of demand and contribute to the ever increasing inflation. Obviously, this isn't sustainable forever. As fewer and fewer newcomers buy lindens, the value of the linden will plummet.

A quick scan of the last few transactions -- oh, wait, Linden Labs have disabled that feature *wink wink nod nod* -- would show that although gambling was officially banned, you can still gamble at a lot of places. It's relatively easy to find large gambling halls who will gladly still take your lindens. Sure, a lot of the major gambling halls have been shut down, but there are still several out there who haven't shut down, and new ones keep cropping up like Whack-a-mole.

So what does all of this really mean? The statistics are telling. The number of new island sales sharply decreased. The volume of trade was shaved in half. The number of logged-in residents is continually dropping. The sinks for land have plummeted. In just one month after the gambling shutdown, the economy is on the verge of collapse. It will keep on churning as long as they can continue to bring in new users, but if you have any money at all invested in Second Life, the smart thing to do is get out while you still can.

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